| CONTINUCARE CORP ITEM 1A RISK FACTORS Risks related to our business Our operations are dependent on two health maintenance organizations |
| We derive substantially all of our net medical services revenues under our managed care agreements with two health maintenance organizations (“HMOs”), Humana Medical Plans, Inc |
| (“Humana”) and Vista Healthplan of South Florida, Inc |
| and its affiliated companies (“Vista”) |
| In Fiscal 2006, we generated approximately 80prca of our net medical services revenues from contracts with Humana and 20prca of our revenues from contracts with Vista |
| Most of our business with Humana is governed by one agreement (the “Humana POP Agreement”) |
| The loss of the Humana POP Agreement or our managed care agreement with Vista, or significant reductions in payments to us under these contracts, could have a material adverse effect on our business, financial condition and results of operations |
| Under our most important contracts we are responsible for the cost of medical services to our patients in return for a fixed fee |
| Our most important contracts with Humana and Vista are “full risk” agreements under which we receive for our services fixed monthly payments per patient at a rate established by the contract, also called a capitated fee |
| In return, we assume full financial responsibility for the provision of all necessary medical care to our patients, even services we do not provide directly |
| Accordingly, we will be unable to adjust the revenues we receive under those contracts, and if medical claims expense exceeds our estimates our profits may decline |
| Relatively small changes in the ratio of our health care expenses to capitated revenues we receive can create significant changes in our financial results |
| If we are unable to manage medical benefits expense effectively, our profitability will likely be reduced |
| We cannot be profitable if our costs of providing the required medical services exceed the revenues that we derive from those services |
| However, our most important contracts with Humana and Vista require us to assume full financial responsibility for the provision of all necessary medical care in return for a capitated fee per patient at a rate established by the contract |
| Accordingly, as the costs of providing medical services to our patients under those contracts increases, the profits we receive with respect to those patients decreases |
| If we cannot continue to improve our controls and procedures for estimating and managing our costs, our business, results of operations, financial condition and ability to satisfy our obligations could be adversely affected |
| A failure to estimate incurred but not reported medical benefits expense accurately will affect our profitability |
| Our medical benefits expense includes estimates of medical claims incurred but not reported, or IBNR We estimate our medical cost liabilities using actuarial methods based on historical data adjusted for payment patterns, cost trends, utilization of health care services and other relevant factors |
| Actual conditions, however, could differ from those assumed in the estimation process |
| Due to the inherent uncertainties associated with the factors used in these assumptions, materially different amounts could be reported in 13 _________________________________________________________________ [62]Table of Contents our financial statements for a particular period under different possible conditions or using different, but still reasonable, assumptions |
| Adjustments, if necessary, are made to medical benefits expense when the criteria used to determine IBNR change and when actual claim costs are ultimately determined |
| Although we believe our past estimates of IBNR have been adequate, they may prove to have been inadequate in the future and our future estimates may not be adequate, any of which would adversely affect our results of operations |
| Further, our inability to estimate IBNR accurately may also affect our ability to take timely corrective actions, further exacerbating the extent of any adverse effect on our results |
| We compete with many health care providers for patients and HMO affiliations |
| The health care industry is highly competitive |
| We compete for patients with many other health care providers, including local physicians and practice groups as well as local, regional and national networks of physicians and health care companies |
| We believe that competition for patients is generally based upon the reputation of the physician treating the patient, the physician’s expertise, and the physician’s demeanor and manner of engagement with the patient, and the HMOs that the physician is affiliated with |
| We also compete with other local, regional and national networks of physicians and health care companies for the services of physicians and for HMO affiliations |
| Some of our competitors have greater resources than we do, and we may not be able to continue to compete effectively in this industry |
| Further, additional competitors may enter our markets, and this increased competition may have an adverse effect on our revenues |
| We may not be able to successfully recruit or retain existing relationships with qualified physicians and medical professionals |
| We depend on our physicians and other medical professionals to provide medical services to our managed care patients and independent physicians contracting with us to participate in provider networks we develop or manage |
| We compete with general acute care hospitals and other health care providers for the services of medical professionals |
| Demand for physicians and other medical professionals are high and such professionals often receive competing offers |
| If we are unable to successfully recruit and retain medical professionals our ability to successfully implement our business strategy could suffer |
| No assurance can be given that we will be able to continue to recruit and retain a sufficient number of qualified physicians and other medical professionals |
| Our business exposes us to the risk of medical malpractice lawsuits |
| Our business entails an inherent risk of claims against physicians for professional services rendered to patients, and we periodically become involved as a defendant in medical malpractice lawsuits |
| Medical malpractice claims are subject to the attendant risk of substantial damage awards |
| Although we maintain insurance against these claims, if liability results from any of our pending or any future medical malpractice claims, there can be no assurance that our medical malpractice insurance coverage will be adequate to cover liability arising out of these proceedings |
| There can be no assurance that pending or future litigation will not have a material adverse affect on us or that liability resulting from litigation will not exceed our insurance coverage |
| Our revenues will be affected by the Medicare Risk Adjustment program |
| The majority of patients to whom we provide care are Medicare-eligible and participate in the Medicare Advantage program |
| CMS is now implementing its Medicare Risk Adjustment project during which it is transitioning its premium calculation methodology to a new system that takes into account the health status of Medicare Advantage participants in determining premiums paid for each participant rather than only considering demographic factors, as was historically the case |
| Beginning January 1, 2004, the new risk adjustment system required that ambulatory data be incorporated into the premium calculation, starting from a blend consisting of a 30prca risk adjustment payment and the remaining 70prca based on demographic factors |
| For 2005, the blend of demographic risk adjustment payments and demographic factors were given equal weight |
| For 2006, the blend consists of a 75prca risk adjustment payment and 25prca based on demographic factors |
| For 2007, the premium calculation will be 100prca based on risk adjustment payments |
| We believe the risk adjustment methodology has generally increased our revenues per patient to date but cannot assure what future impact this risk adjustment methodology will continue to have on our business, results of operations, or financial condition |
| It is also possible that the risk adjustment methodology may result in fluctuations in our medical services revenues from year to year |
| All of our medical services revenues are presently derived from our operations in Florida |
| Adverse economic, regulatory, or other developments in Florida (including hurricanes) could have a material adverse effect on our financial condition or results of operations |
| In the event that we expand our operations into new geographic markets, we will need to establish new relationships with physicians and other health care providers |
| In addition, we will be required to comply with laws and regulations of states that differ from the ones in which we currently operate, and may face competitors with greater knowledge of such local markets |
| There can be no assurance that we will be able to establish relationships, realize management efficiencies or otherwise establish a presence in new 14 _________________________________________________________________ [63]Table of Contents geographic markets |
| Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price |
| We are not presently subject to the assessment and attestation processes required by Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) |
| However, when we become subject to those Securities and Exchange Commission rules, we will be required to assess the effectiveness of our internal controls and (if the acquisition of the MDHC Companies is completed their internal controls) and to receive a report by our independent auditors addressing these assessments |
| While we believe that we will be able to timely meet our obligations under Section 404 and that our management will be able to assess as to the effectiveness of our internal controls, if we are unable to timely comply with Section 404, if our management is unable to assess as to the effectiveness of our internal controls or if our auditors are unable to attest to that assessment or provide their own opinion on our internal controls, the stock price of our common stock may be adversely affected |
| If we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act |
| Absolute assurance also cannot be provided that testing will reveal all material weaknesses or significant deficiencies in internal control over financial reporting |
| The MDHC Companies is a privately-held business and is not subject to the same requirements for internal controls as public companies |
| While we intend to address any material weaknesses at acquired companies (including the MDHC Companies), there is no assurance that this will be accomplished |
| If we fail to strengthen the effectiveness of acquired companies’ internal controls, we may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act |
| Failure to achieve and maintain an effective internal control environment could have a material adverse effect on our stock price |
| A significant portion of our voting power is concentrated |
| One of our directors, Dr |
| Phillip Frost, and entities affiliated with him, beneficially owned approximately 44prca of our outstanding common stock as of September 1, 2006 |
| If the acquisition of the MDHC Companies is completed, we expect Dr |
| Frost will beneficially own approximately 32prca of our outstanding common stock and the owners of the MDHC Companies will, in the aggregate, beneficially own approximately 28prca of our outstanding common stock |
| Frost’s significant beneficial ownership of our common stock, he currently has a substantial ability to influence most corporate actions requiring shareholder approval, including the election of directors, and will be able to effectively control any shareholder votes or actions with respect to such matter |
| If the acquisition of the MDHC Companies is completed, Dr |
| Frost and the owners of the MDHC Companies, collectively, will be able to control all of these matters |
| This influence may make us less attractive as a target for a takeover proposal |
| It may also make it more difficult to discourage a merger proposal that Dr |
| Frost or the owners of the MDHC Companies favor or to wage a proxy contest for the removal of incumbent directors |
| As a result, this may deprive the holders of our common stock of an opportunity they might otherwise have to sell their shares at a premium over the prevailing market price in connection with a merger or acquisition of us or with or by another company |
| We are dependent on our executive officers and other key employees |
| Our operations are highly dependent on the efforts of our Chief Executive Officer and our other key employees |
| Our executive officers and key employees do not have employment agreements with us, but are instead employed on an “at will” basis |
| While we believe that we could find replacements, the loss of any of their leadership, knowledge and experience could negatively impact our operations |
| Replacing any of our executive officers or key employees might be difficult or take an extended period of time because a limited number of individuals in the managed care industry have the breadth and depth of skills and experience necessary to operate a business such as ours |
| Our success is also dependent on our ability to hire and retain qualified management, technical and medical personnel |
| We may be unsuccessful in recruiting and retaining such personnel, which could negatively impact our operations |
| We depend on the management information systems of our affiliated HMOs |
| Our operations are dependent on the management information systems of the HMOs with which we contract |
| Our affiliated HMOs provide us with certain financial and other information, including reports and calculations of costs of services provided and payments to be received by us |
| Both the software and hardware our HMO affiliates use to provide us with that information have been subject to rapid technological change |
| Because we rely on this technology but do not own it, we have limited ability to ensure that it is properly maintained, serviced and updated |
| In addition, information systems such as these may be vulnerable to failure, acts of sabotage such as “hacking,” and obsolescence |
| If either of our principal HMO affiliates were to temporarily or permanently lose the use of the information systems that provide us with the information on which we depend or the underlying patient and physician data, 15 _________________________________________________________________ [64]Table of Contents our business and results of operations could be materially and adversely affected |
| Because our HMO affiliates generate certain of the information on which we depend, we have less control over the manner in which that information is generated than we would if we generated the information internally |
| We depend on our information processing systems |
| Our information processing systems allow us to monitor the medical services we provide to patients |
| They also enable us to provide our HMO affiliates with information they use to calculate the payments due to us |
| Although we license most of our information processing systems from third-party vendors we believe to be reliable, we developed certain elements of our information processing systems on our own |
| Our current systems may not perform as expected or provide efficient operational solutions if: • we fail to adequately identify or are unsuccessful in implementing solutions for all of our information and processing needs; • our processing or information systems fail; or • we fail to upgrade systems as necessary |
| Volatility of our stock price could adversely affect you |
| The market price of our common stock could fluctuate significantly as a result of many factors, including factors that are beyond our ability to control or foresee and which, in some cases, may be wholly unrelated to us or our business |
| These factors include: • state and federal budget decreases; • adverse publicity regarding HMOs and other managed care organizations; • government action regarding eligibility; • changes in government payment levels; • changes in state mandatory programs; • changes in expectations of our future financial performance or changes in financial estimates, if any, of public market analysts; • announcements relating to our business or the business of our competitors; • conditions generally affecting the managed care industry or our provider networks; • the success of our operating strategy; • the operating and stock price performance of other comparable companies; • the termination of any of our contracts; • regulatory or legislative changes; • acts of war or terrorism or an increase in hostilities in the world; and • general economic conditions, including inflation and unemployment rates |
| Risks related to the acquisition of the MDHC Companies |
| If we are unable to complete the acquisition of the MDHC Companies, our business may be adversely affected |
| If we do not complete the acquisition of the MDHC Companies as we intend, our business and market price of our stock may be adversely affected, and we may be unable to find other viable manners in which to grow our business |
| We must pay the costs related to the acquisition, such as legal, accounting and financial advisor fees, even if the acquisition does not close |
| The acquisition of the MDHC Companies will result in dilution to our current shareholders |
| Pursuant to the terms of the MDHC Agreement, upon closing of the acquisition of the MDHC Companies, we will issue to the MDHC Companies 20dtta0 million shares of our common stock |
| This securities issuance will dilute the voting power and ownership percentage of our existing shareholders |
| We must obtain several third party consents and government permits to complete the acquisition of the MDHC Companies |
| We and the MDHC Companies must obtain approvals and consents in a timely manner from several third parties and licenses and permits from governmental authorities prior to completion of the acquisition |
| If these approvals, licenses and permits are not received, or are received on terms that do not satisfy the conditions set forth in the MDHC Agreement, then the parties will not be obligated to complete the acquisition |
| Neither we nor the MDHC Companies control the parties from which we will seek these approvals, licenses and permits, and those parties are not required to provide their consent to the acquisition or issue the applicable licenses and permits |
| In fact, some of the governmental permits we require can not be applied for until after the acquisition is 16 _________________________________________________________________ [65]Table of Contents completed |
| Some third party lenders to the MDHC Companies have indicated that they are not presently disposed to consent to our assumption of the MDHC Companies’ indebtedness |
| If we can not prevail upon those lenders to consent to our assumption of that indebtedness, we will be required to refinance the debt in order to complete the acquisition of the MDHC Companies, and there is no assurance that we will be able to refinance that debt on favorable terms or at all |
| Any such refinancing of the MDHC Companies’ debt could result in increased costs to us or diminish the benefits we expect to realize from the acquisition |
| As a condition to approval of the acquisition or the granting of the required licenses and permits, those third parties and governmental authorities may impose requirements, limitations or costs that could negatively affect the way we conduct business following the acquisition |
| These requirements, limitations or costs could also jeopardize or delay completion of the acquisition or, with respect to licenses and permits for which we can only apply after the acquisition is completed, require us to restructure the operations of the combined company |
| Substantial sales of our common stock could adversely affect its market price |
| We will issue 20dtta0 million shares of our common stock upon completion of the acquisition of the MDHC Companies, which we expect to represent approximately 28prca of our then issued and outstanding common stock |
| All such shares shall be deemed “restricted securities” under federal securities laws |
| We will enter into a registration rights agreement under which we will agree to register the offer and resale of up to 1dtta5 million shares of our common stock issued pursuant to the MDHC Agreement, which the owners of the MDHC Companies will, subject to the terms and conditions of the registration rights agreement, be permitted to sell in public or private transactions during the six-month period commencing six months after the date on which we complete the acquisition |
| Further, the owners of the MDHC Companies will be permitted to offer and sell the shares of common stock they receive as a result of the acquisition pursuant to Rule 144 under the Securities Act of 1933 beginning on the first anniversary of the date on which we complete the acquisition |
| The sale of a substantial amount of our common stock after the acquisition of the MDHC Companies could adversely affect its market price |
| It could also impair our ability to raise money through the sale of more common stock or other forms of capital |
| We may not realize the anticipated benefits from the Acquisition |
| We may not achieve the benefits we are seeking from the acquisition of the MDHC Companies |
| There is no assurance that we can successfully integrate the MDHC Companies’ business with our operations, that we will otherwise succeed in growing our business, or that the financial results of the combined company will meet or exceed the financial results that we would have achieved without the acquisition |
| As a result, our operations and financial results may suffer and the market price of our common stock may decline |
| The indemnification obligations under the MDHC Agreement are limited |
| The MDHC Companies and their owners have agreed to indemnify us for certain breaches of covenants, warranties and representations, for failures to perform their obligations pursuant to the MDHC Agreement and ancillary agreements as well as for the liabilities we did not agree to assume |
| In the event of certain breaches of representations and warranties subject to indemnification, we are only entitled to be indemnified by the breaching owners if the aggregate amount of damages resulting from such breach exceeds dlra500cmam000; and then only to the extent such damages exceed dlra500cmam000 |
| Additionally, the indemnification obligations of the owners are not joint and several |
| As a result, if even one owner is unable to pay the amount owed to us under the indemnification provisions of the MDHC Agreement, we will not be able to receive the full amount of indemnification to which we are entitled |
| These indemnification obligations may be inadequate to fully address any damages we may incur, and our operations and financial results as well as the market price of our common stock may suffer as a result |
| The Internal Revenue Service may disagree with the parties’ description of the federal income tax consequences |
| Neither we nor the MDHC Companies has applied for, or expects to obtain, a ruling from the Internal Revenue Service with respect to the federal income tax consequences of the acquisition of the MDHC Companies nor have we or the MDHC Companies received an opinion of legal counsel as to the anticipated federal income tax consequences of the acquisition |
| No assurance can be given that the Internal Revenue Service will not challenge the income tax consequences of the acquisition to us |
| If we are unable to successfully integrate the MDHC Companies’ business operations into our business operations after the Acquisition, we may not realize the anticipated benefits from the Acquisition and our business could be adversely affected |
| The acquisition of the MDHC Companies involves the integration of companies that have previously operated independently |
| Successful integration of the MDHC Companies’ operations with ours will depend on our ability to consolidate operations, systems and procedures, eliminate redundancies and reduce costs |
| We will also have to be able to integrate the MDHC Companies’ Medicaid line of business, a business area with which we do not have significant experience, into our business |
| If we are unable to do so, we may not realize the anticipated potential benefits of the acquisition, and our business and results of operations could be adversely affected |
| Difficulties could include the loss of key employees, patients or HMO affiliations, the disruption of our 17 _________________________________________________________________ [66]Table of Contents and the MDHC Companies’ ongoing businesses and possible inconsistencies in standards, controls, procedures and policies |
| Our integration of the MDHC Companies’ operations may be complex and time-consuming |
| Additionally, a number of factors beyond our control could prevent us from realizing any efficiencies and cost savings we expect |
| If the combined company experiences losses following the closing of the acquisition, we could experience difficulty meeting our business plan and our stock price could be negatively affected |
| If the acquisition of the MDHC Companies is completed, we may experience operating losses and negative cash flow from operations as we implement our business plan |
| Any failure to achieve or maintain profitability could negatively affect the market price of our common stock |
| A substantial failure to achieve profitability could make it difficult or impossible for us to grow our business |
| Accordingly, our business strategy may not be successful, and we may not generate significant revenues or achieve profitability |
| If we do achieve profitability in the future, we may not be able to sustain or increase profitability on a quarterly or annual basis |
| The debt we will assume in the Acquisition will increase our debt to equity ratio and expose us to greater risks |
| We expect to assume or refinance approximately dlra8dtta3 million of the MDHC Companies’ net indebtedness in connection with the acquisition |
| In addition, if necessary, we may fund the acquisition consideration from borrowings under our credit facility or by incurring other indebtedness |
| The indebtedness we assume and any portion of the acquisition consideration we finance from borrowings may: • increase our vulnerability to general adverse economic and industry conditions; • limit our flexibility in planning for, or reacting to, changes in our business and the healthcare industry, which may place us at a disadvantage compared to our competitors that have less debt; and • limit, along with the possible financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds |
| Any of the foregoing could have a material adverse effect on our operations and financial results |
| If we complete the acquisition of the MDHC Companies our substantial intangible assets will greatly increase |
| Our balance sheet includes intangible assets, including goodwill and other separately identifiable intangible assets, which represented approximately 38prca of our total assets at June 30, 2006 |
| If we complete the acquisition of the MDHC Companies we expect our goodwill to increase by approximately dlra58dtta6 million and our intangible assets to reflect approximately 71prca of our total assets following the acquisition |
| We are required to review our intangible assets including our goodwill for impairment on an annual basis or more frequently if certain indicators of permanent impairment arise |
| Because we operate in a single segment of business, we perform our impairment test on an enterprise level |
| In performing the impairment test, we compare the then-current market price of our outstanding shares of common stock to the current value of our total net assets, including goodwill and intangible assets |
| Should we determine that an indicator of impairment has occurred we would be required to perform an additional impairment test |
| Indicators of a permanent impairment include, among other things: • a significant adverse change in legal factors or the business climate; • the loss of a key HMO contract; • an adverse action by a regulator; • unanticipated competition; • loss of key personnel; or • allocation of goodwill to a portion of business that is to be sold |
| Depending on the market value of our common stock at the time that an impairment test is required, there is a risk that a portion of our intangible assets would be considered impaired and must be written-off during that period |
| The market price of our common stock can fluctuate significantly because of many factors, including factors that are beyond our ability to control or foresee and which, in some cases, may be wholly unrelated to us or our business |
| As a result, fluctuations in the market price of our common stock, even those wholly unrelated to us or our business may result in us incurring an impairment charge relating to the write-off of our intangible assets |
| Such a write-off could have a material adverse effect on our results of operations and a further adverse impact on the market price of our common stock |
| Our acquisitions could result in integration difficulties, unexpected expenses, diversion of management’s attention and other 18 _________________________________________________________________ [67]Table of Contents negative consequences |
| As part of our growth strategy, we plan to continue to evaluate potential business acquisition opportunities that we anticipate will provide new product and market opportunities, benefit from and maximize our existing assets and add critical mass |
| Any such acquisitions would require us to integrate the technology, products and services, operations, systems and personnel of the acquired businesses with our own and to attempt to grow the acquired businesses as part of our company |
| The successful integration of businesses we have acquired and may acquire in the future is critical to our future success, and if we are unsuccessful in integrating these businesses, our operations and financial results could suffer |
| The risks and challenges associated with the acquisition and integration of an acquired business include, but are not limited to, the following: • we may be unable to centralize and consolidate our financial, operational and administrative functions with those of the businesses we acquire; • our management’s attention may be diverted from other business concerns; • we may be unable to retain and motivate key employees of an acquired company; • litigation, indemnification claims and other unforeseen claims and liabilities may arise from the acquisition or operation of acquired businesses; • the costs necessary to complete integration may exceed our expectations or outweigh some of the intended benefits of the transactions we complete; • we may be unable to maintain the patients or goodwill of an acquired business; and • the costs necessary to improve the operating systems and services of an acquired business may exceed our expectations |
| Competition for acquisition targets and acquisition financing and other factors may impede our ability to acquire other businesses and may inhibit our growth |
| We anticipate that a portion of our future growth may be accomplished through acquisitions |
| The success of this strategy depends upon our ability to identify suitable acquisition candidates, reach agreements to acquire these companies, obtain necessary financing on acceptable terms and successfully integrate the operations of these businesses |
| In pursuing acquisition and investment opportunities, we may compete with other companies that have similar growth strategies |
| Some of these competitors are larger and have greater financial and other resources than we have |
| This competition may render us unable to acquire businesses that could improve our growth or expand our operations |
| Risks related to our industry We are subject to government regulation |
| Our business is regulated by the federal government and the State of Florida |
| The laws and regulations governing our operations are generally intended to benefit and protect health plan members and providers rather than our shareholders |
| The government agencies administering these laws and regulations have broad latitude to enforce them |
| These laws and regulations, along with the terms of our contracts, regulate how we do business, what services we offer, and how we interact with our patients, other providers and the public |
| We are subject to various governmental reviews, audits and investigations to verify our compliance with our contracts and applicable laws and regulations |
| Any adverse review, audit or investigation could result in: • forfeiture of amounts we have been paid; • imposition of civil or criminal penalties, fines or other sanctions on us; • loss of our right to participate in government-sponsored programs, including Medicare; • damage to our reputation in various markets; • increased difficulty in hiring or retaining qualified medical personnel or marketing our products and services; and • loss of one or more of our licenses to provide health care services |
| Any of these events could reduce our revenues and profitability and otherwise adversely affect our operating results |
| The health care industry is subject to continued scrutiny |
| The health care industry, generally, and HMOs specifically, have been the subject of increased government and public scrutiny in recent years, which has focused on the appropriateness of the care provided, referral and marketing practices and other matters |
| Increased media and public attention has focused on the outpatient services industry in particular as a result of allegations of fraudulent practices related to the nature and duration of patient treatments, illegal remuneration and certain marketing, admission and billing practices by certain health care providers |
| The alleged practices have been the subject of federal and state investigations, as 19 _________________________________________________________________ [68]Table of Contents well as other legal proceedings |
| There can be no assurance that we or our HMO affiliates will not be subject to federal and state review or investigation from time to time, and any such investigation could adversely impact our business or results of operations, even if we are not ultimately found to have violated the law |
| Our insurance coverage may not be adequate, and rising insurance premiums could negatively affect our profitability |
| We rely on insurance to protect us from many business risks, including, “stop loss” insurance |
| In most cases, as is the trend in the health care industry, as insurance policies expire, we may be required to procure policies with narrower coverage, more exclusions and higher premiums |
| In some cases, coverage may not be available at any price |
| There can be no assurance that the insurance that we maintain and intend to maintain will be adequate, or that the cost of insurance and limitations in coverage will not adversely affect our business, financial position or results of operations |
| Deficit spending and economic downturns could negatively impact our results of operations |
| Adverse developments in the economy often result in decreases in the federal budget and associated changes in the federal government’s spending priorities |
| We are presently in a period of deficit spending by the federal government, and those deficits are presently expected to continue for at least the next several years |
| Continued deficit spending by the federal government could lead to increased pressure to reduce governmentally funded programs such as Medicare |
| If governmental funding of the Medicare program was reduced without a counterbalancing adjustment in the benefits offered to patients, our results of operations could be negatively impacted |
| Many factors that increase health care costs are largely beyond our ability to control |
| Increased utilization or unit cost, competition, government regulations and many other factors may, and often do, cause actual health care costs to increase and these cost increases can adversely impact our profitability |
| These factors may include, among other things: • increased use of medical facilities and services, including prescription drugs and doctors’ office visits; • increased cost of such services; • new benefits to patients added by the HMOs to their covered services, whether as a result of the Medicare Modernization Act or otherwise; • changes or reductions of our utilization management functions such as preauthorization of services, concurrent review or requirements for physician referrals; • catastrophes (including hurricanes), epidemics or terrorist attacks; • the introduction of new or costly treatments, including new technologies; • new government mandated benefits or other regulatory changes; and • increases in the cost of “stop loss” or other insurance |
| Health care reform initiatives, particularly changes to the Medicare system, could adversely effect our operations |
| Substantially all of our net medical services revenues from continuing operations are based upon Medicare funded programs |
| The federal government from time to time explores ways to reduce medical care costs through Medicare reform and through health care reform generally |
| Any changes that would limit, reduce or delay receipt of Medicare funding or any developments that would disqualify us from receiving Medicare funding could have a material adverse effect on our business, results of operations, prospects, financial results, financial condition or cash flows |
| Due to the diverse range of proposals put forth and the uncertainty of any proposal’s adoption, we cannot predict what impact any Medicare reform proposal ultimately adopted may have on our business, financial position or results of operations |
| Medicare premiums have generally risen more slowly than the cost of providing health care services |
| Our revenues are largely determined by the premiums that pay our affiliated HMOs under their Medicare Advantage (formerly known as Medicare+Choice) contracts |
| Although CMS has generally increased the premiums paid to the HMOs for Medicare Advantage patients each year, the rate of increase has generally been less than the rate at which the cost of providing health care services, including prescription drugs, has increased on a national average |
| As a result, we are under increasing pressure to contain our costs, and the margin we realize on providing health care services has generally decreased over time |
| There can be no assurance that CMS will maintain its premiums at the current level or continue to increase its premiums each year |
| Additionally there can be no assurances that we will receive the total benefit of any premium increase the HMOs may receive |